Bank of England Maintains Rates

In its latest Monetary Policy Committee announcement, the Bank of England has kept the base rate at 0.5%

The Bank of England’s Monetary Policy Committee has voted to maintain the base bank rate at 0.5%

Should the base rate stay at the same historic low this time next month then that will be a full 5 years since the rate hit its all time low of 0.5%

Just before the announcement on the 5th March 2009, the base rate was 1% and the MPC voted to drop it by 0.5 percentage points to the level at which it still sits today.

The Committee also voted to maintain asset purchases, better known as Quantitative Easing. The level of asset purchases remains at £375 billion. Being unable to reduce the base rate to below 0.5% in March 2009, the policy of asset purchases was introduced to inject money directly in to the UK economy.

Inflation remains above its target level of 2% and whilst an economic recovery does appear to be under way, the BoE believes that recovery may still be very weak when compared to the rates of recovery in the past.

Mark Carney, the new Governor of the Bank of England, who took over from Mervyn King in July last year, has set in place a policy of "forward guidance" in order to give some indication of future monetary policy.

Already the forward guidance has stated that the bank rate should not rise above 0.5% at least until the unemployment rate has fallen below 7%

In addition the Consumer Price Index (CPI) level of inflation must also not be more than 0.5% above its target level (currently 2%) and the medium-term inflation outlook needs to be "well anchored".

Other factors regarding a "significant threat to financial stability" will also need to be considered if the MPC is to raise rates above the current all time low level.

The minutes of the Monetary Policy Committee’s meeting will be available in two weeks’ time on Wednesday the 22nd January 2014.

The European Central Bank has also voted to maintain interest rates for the Eurozone at their current lows.

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